It was announced today that allowable expenses from rental income will be restricted for landlords from April 2016. The wear and tear allowance will be replaced by a new system from April 2016. The past wear and tear allowance allows landlords to deduct (broadly) 10% of their rental income in calculating taxable profit to allow for wear and tear. This allowance will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year. Capital allowances for furnished holiday lets will not be affected. A technical consultation will be published later in the year to consider this further. All landlords of residential property in or outside the UK, are permitted to claim relief for finance costs (e.g. mortgage interest) incurred on their let property, giving tax relief at 40% and 45% for landlords paying tax at the higher and additional tax rates. This tax relief will be restricted to the basic rate of income tax only (20%). Implementation will be phased from April 2017 as follows: • 2017/18 – the deduction from property income will be restricted to 75% of finance costs with the remaining 25% available at the basic rate. • 2018/19 – 50% of finance costs available for full tax relief and the remaining 50% available at the basic rate. • 2019/20 – 25% of finance costs available for full tax relief and the remaining 75% available at the basic rate. • 2020/21 – all financing costs incurred by a landlord will be given as basic rate tax reduction. All landlords of furnished residential properties will be affected by the replacement of wear and tear allowance by a new system. Landlords of residential properties paying tax at the higher and additional rates will be affected by the restriction of finance costs, excluding those with qualifying furnished holiday lets. The new rules replacing wear and tear allowance will have effect from April 2016. The restriction of allowable finance costs will be phased in from April 2017 over 4 years.